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If a firm has sales of $100, total expenses (including interest and taxes) of $50, has a stock that is selling at $50 per share and has 10 shares of stock outstanding, then the firm has a P/E ratio of:

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Answer: 10

Explanation:

P/E Ratio = Price per share/Earnings per share

Earnings per share:

= (Sales - expenses) / number of shares outstanding

= (100 - 50) / 10

= $5.00

P/E Ratio is therefore:

= 50 / 5

= 10

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